"Since the general civilization of mankind, I believe there are more instances of the abridgment of the freedom of the people by gradual and silent encroachments of those in power, than by violent and sudden usurpations; but, on a candid examination of history, we shall find that turbulence, violence, and abuse of power, by the majority trampling on the rights of the minority, have produced factions and commotions, which, in republics, have, more frequently than any other cause, produced despotism. If we go over the whole history of ancient and modern republics, we shall find their destruction to have generally resulted from those causes."At the time the Constitution was written we had already tried out a very Anti-Federalist government with the Articles of Confederation, and it was a massive failure. Everyone agreed that we needed more centralized power in the federal government, but the states were not eager to give up power, either. The challenge was finding a good balance between the two, and to create a document that could be ratified. It was from these debates The Federalist Papers were born.
"Hence it is that such democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths. Theoretic politicians, who have patronized this species of government, have erroneously supposed that by reducing mankind to a perfect equality in their political rights, they would, at the same time, be perfectly equalized and assimilated in their possessions, their opinions, and their passions. "
We all know how the story ends, so I'll skip ahead a bit. The major reason that some things were Federalized and others not in 1787 is entirely practical. It all boiled down to ratification. We'd fought a hard war and won, and already tried a lax form of government. The Founders spent a hot summer in a closed up room in their wool suits, pantyhose and wigs, and frankly didn't want to do it again. They also didn't want the nation to crumble in infancy, so they had to come up with something everyone would agree on. Other than the military, there is really no good reason why some powers were granted to the federal government and some to the states. Some things make more sense under the control of the federal government, but in the end there was no "right" or "wrong" answer there, and they didn't have some magic formula for what would work in the long-term, they just knew what would or would not be ratified by the states.
Regardless of why it shook down the way it did, it is what we are left with. And, ultimately, you wanted to know why having it set up this way is better than a stronger federal government. Now that I've said all that I've said, I'll try and answer that question.
1. As previously mentioned, our government was designed to move slowly and deliberately. Part of that plan was dividing the federal government into the three, co-equal branches that have completely separate powers, but which rely on one another to get things done. That also prevents a concentration of power in one branch, which is supposed to ensure freedom. Madison also famously said, "Ambition must be made to counteract ambition." Ta da! There you have checks and balances!
But dividing power between the three branches of government wasn't seen as a strong enough check on government power. That's why they gave certain areas specifically to the states. If we further divide power between the federal, state and local governments you have just that many more checks and balances in the system. Each level of government will guard their areas of power with a vengeance. The dilution of government power is the best, and only surefire, way to limit tyranny. It's kind of like the difference between peeing in the bathtub and peeing in the ocean. Yeah, you are the only one peeing in the tub, but there's much less water so in the end you are basically sitting in your own pee. Lots of things pee in the ocean, but there's so much more water, plus it's moving, that it's not really a big deal...even if everyone on the beach that day pees in the ocean, too.
2. Some things are just better handled at the local level, because (like in the milk and cookies example) no one knows what they need most than the individual. Sure, the federal government is capable of filling potholes but isn't that much easier to address at the city level? Just like you'd prefer to shop at a locally-owned mom and pop store over WalMart, you prefer some services to be performed at the local level. What does Mr. Joe Road Department Bureaucrat in DC care about the street in front of your house? He never has to see it, or drive on it. But Ms. Jane City Government does have to look at it and drive on it, and even if she doesn't she has to live on your town and wants it to be nice and livable. She doesn't want people to move away because the roads are shitty, or not move their business's new headquarters there because of road conditions. Local people have a stake in local issues and problems, and so they are better equipped knowledge-wise, and are invested on a personal level in solving them.
Further, not every city is the same and not every state is the same. We worry about flooding, but that's not a major concern in Phoenix, AZ. A one-size-fits-all policy just won't work on so many issues, and since everything is the government's business nowadays, the best solution is going to come from the people who live there among the problem and will have to live with the results. Trying to centralize all of these decisions in the federal government will only work to limit choices (back to the milk and cookies example), and ultimately limit freedom. And as Madison warned, it is not the violent revolution we must fear...it is the gradual encroachment on our liberties we must always be on the lookout for. And just like with eating milk and cookies, one bite here and one sip there and suddenly you are all out of milk and cookies. How did that happen? I just had a whole box of Oreos and a gallon of milk a few seconds ago!?!
3. Because states are smaller, and generally more homogeneous in population than the nation as a whole, they can serve as important testing grounds for other states or for potential federal policy. Justice Brandeis called states "the laboratories of democracy" meaning that states should be free to try new and innovative policies and see if they work. If they do work, then great, we've learned something that can be applied elsewhere to everyone's benefit. Yet, if they fail, we've still learned something but without the risk of damaging too many lives, or the economy as a whole, or the nation as a whole.
If we limit states' ability to try things out we deprive ourselves of a valuable resource that is impossible to replicate in any other way. Not only that, but we deprive ourselves of an important tool for keeping the union harmoniously intact. The fact that states are generally homogeneous (demographically, economically, ideologically) allows each state to create the environment and society that its residents prefer and people are free to move between the states as they choose to find the locations that best fit their needs and beliefs. Just as people in the "Bible Belt" prefer a more traditional, conservative, faith-based community that would anger most residents of California, people in the auto manufacturing centers like Detroit don't take kindly to California's strict environmental regulations.
As Madison stated, and to which I agreed, factions are natural and not preventable. Forcing everyone to live by the same standards and morals will only produce discontent. This was the case with the Civil War and slavery, and again with Jim Crow laws and the Civil Rights Movement which we all agree now were the "right" or "correct" or "just" things to do, but the case isn't usually so black and white, cut and dry as with those examples. People in the Bible Belt like Sunday Blue Laws and having the liquor stores closed on Sunday. Is that wrong or right, or simply a matter of preference that doesn't really affect much? And don't I have the freedom to try and change those laws, or to move somewhere else that doesn't have them if they are a major source of unhappiness to me? As long as it's constitutional and doesn't infringe on anyone else's constitutional rights then it should be allowed.
For a long time this division of power worked well, and not much was disputed in terms of what was federal and what was state but times change, things change and the world became much different than it was in 1787. The remarkable thing about our Constitution is that it has held up to the test of time despite all of the changes in society. It has been amended and interpreted to accommodate changes the Founders couldn't have anticipated in their wildest dreams, but what we must always be careful of is changing the interpretation of the document so much that the original spirit and intent is no longer present within our application of it.
That is the issue we face today, and it's alot trickier than people want to admit. Obviously, the areas of federal power were clearly enumerated in the Constitution but some of the vagueness in the Bill of Rights has come back to bite it in the ass.

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